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F R E N D Z of martian
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This long transcript is well worth the read - how money is created and
destroyed.
Loans, of course, require payment of interest. When banks create
money
to loan, they do not create any money to pay interest. Therefore we
always have more debt than money.
... the reason companies are obsessed with growing, merging and
takeovers
-------- Original Message --------
Subject: [PBM] MONEY QUESTION
Date: Fri, 31 Dec 1999 05:45:52 -0500 (EST)
From: [EMAIL PROTECTED]
To: [EMAIL PROTECTED]
- - - -
Pages by email [Fri Dec 31 05:45:26 EST 1999]: MONEY QUESTION
http://landru.i-link-2.net/monques/monques.html
- - - -
THE MONEY QUESTION
? ? ?
This is an edited and updated version of a speech to the Washington
State Libertarian Convention, Tacoma, Washington, 1995 by Muriel E.
Mobley.
Albert Ellis said in a New Guide to Rational Living:
...you could hardly conceive of a more irrational world than our
present society. In spite of the enormous advances in technical
knowledge made during the last century, and the theoretical
possibility that all of us could live in peace and prosperity, we
actually hang on to the brink of local strife, world war, economic
insecurity, political skulduggery, organized crime, pollution,
ecological bankruptcy, business fraud, sexual violence, racial
bigotry, labor and management inefficiency, religious fanaticism, and
other manifestions of inhumanity. ...Modern life, instead of seeming
just a bowl of cherries, often more closely resembles a barrel of
prune pits.
Even though Ellis recognizes that we have the technology to feed,
house, and clothe all mankind as well as live in peace, freedom,
abundance, and leisure, he never in all of his writings which I have
ever read ever once addressed the cause of our maladies. But others
have. If only we will listen, learn, and act on our knowledge there
is
hope of a remedy that will enhance the life and liberty of every
individual.
In America today there is no shortage of people willing to work at
alleviating society's ills. Unfortunately, very few recognize just
what it is that is causing such turmoil in our supposedly enlightened
world.
What is the cause of all this social turmoil?
C. H. Douglas said, "The answer is so short as to be almost banal. It
is money."
Ralph Borsodi said, "Without money reform, no social reform would be
possible," and added, "Money reform, or an honest money system, will
be the most difficult reform to bring about because so few people
understand the problem."
Lord Maynard Keynes said, "There is no subtler, no surer means of
overturning the existing basis of society than to debauch their
currency. The process engages all the hidden force of economic law on
the side of destruction, and does it in a manner which not one man in
a million is able to diagnose."
The supposedly mysterious arena of money mechanics is the battlefield
where the war to defeat the power of a corrupt money system will be
won or lost. Money mechanics is the nuts and bolts procedure that
creates and uncreates money. I will attempt an explanation of the
mechanics of America's money system. It is so simple that I have
often
said that its simplicity is its best cover. It is incredibly simple
and many people refuse to believe it.
This explanation will be quite brief, but it is based on documented
facts not the least of which are the publications of the system
itself.[1](1) I hope my explanation will be sufficient for us to
begin
to expose commonly believed myths and fallacies. It should help
expose
the anti-democratic, anti-social, and anti-libertarian nature of the
system. It should also expose some of the mutually exclusive
contradictions in orthodox economics. No economic theory or
ideological construct that excludes money mechanics has any chance of
being accurate and complete.
In 1791 the Congress established a [2]central bank to monetize the
government's debt. In 1792 the Congress enacted a [3]coinage bill to
establish a mint and coin privately owned silver. The monetized debt
assured a justification for taxation for the benefit of the financial
oligarchy. The Coinage Act assured that rich people could convert
their silver to legal tender money.
The Federal Reserve Act of 1913 and subsequent revisions,
particularly
in 1935 and 1980, are but consolidations of financial oligarchic
power
that began in 1791.
You need not share my opinions of the foregoing history to observe
and
learn what the present financial system is all about and observe its
effects. Total Credit Market Debt is nearly $23 trillion.[4](2) TCMD
includes government, financial, foreign, and private debt but
excludes
corporate stock. Social, financial, political, and environmental
chaos
runs rampant.
Nothing I am about to tell you is secret, but the information will
not
come to you through ordinary education and media sources. You must go
to it.
The present private monopoly banking system was enacted into law Dec.
23, 1913 by legislation blatantly mislabeled the [5]Federal Reserve
Act. It has been subsequently revised.[6](3)
This private monopoly bank is our central banking system. It is the
monetary policy authority of the United States. It is a bank of
issue,
that is, it creates and regulates the money supply. It is sometimes
called the bankers' bank. It is erroneously called the government's
bank. The government banks there, but the government does not own or
control the Federal Reserve Banks any more than you own or control
the
bank where you bank.
Monetary policy of the bank monopoly must be clearly distinguished
from fiscal policy of the government. Monetary policy is creation and
regulation of the money supply; fiscal policy of the government is
tax, borrow, and spend. Monetary and fiscal policy are different and
sometimes conflict.
In its present form the nationwide banking monopoly consists of
twelve
regional banks, a Board of Governors, the Federal Open Market
Committee, several advisory committees, and the member depository
institutions such as commercial banks, S & Ls, credit unions, etc.
Most depository institutions are members but a few still operate
under
state laws.
The bank monopoly makes monetary policy in three ways: 1. It creates
and regulates original bank reserves. 2. It dictates fractional
reserve ratios. 3. It dictates the discount interest rate.
Regulation of original bank reserves is accomplished, primarily, by
buying and selling U. S. Treasury securities in the open
market.[7](4)
The Fed buys securities by writing checks or creating deposits by
computer entry for money that does not exist. The Fed does not
complete a transaction by transferring money from one account to
another as ordinary businesses do. The Fed creates the money it uses
in its open market transactions.
The operation may be best understood if we use the example of checks.
The Fed writes a check to a securities dealer. The dealer deposits
the
check at his commercial bank. The commercial bank credits the
dealer's
account and returns the check to the Fed. The Fed credits the bank's
reserve account. New money has been created and can be circulated by
the dealer writing checks to pay his bills.
The money created by this process has no corporeal existence other
than numbers in a bank's ledger. Keep in mind that no notes have been
printed and no coins have been minted. This is the secret of
understanding money mechanics which I call ledger entry legerdemain
or
ledger entry shell game. Also, keep in mind that if you or I did such
a thing, we would be called federal although not Federal Reserve Bank
officer. We would be called federal prisoner.
The deposit made by the securities dealer creates an addition to the
commercial bank's reserve account. Commercial banks may lend a
portion
of the value of the reserve account. The portion is determined by the
specified fractional reserve requirement. If the specified fraction
is
10%, the bank may lend 90% of its reserve account value.
If the Fed wrote a check for $1000 to the securities dealer, the
commercial bank would accrue $1000 in new reserves and could lend
$900. The $900 loan creates new deposits and a transfer of $900 of
reserves to the recipient bank. The recipient bank may lend $810. The
deposit of $810 and transfer of reserves enables a loan of $729. The
process limits the commercial banking system to a maximum creation
limit of $9000 from an original $1000 dollar deposit and reserve
creation by the Fed. It is a cascading system of money creation that
is limited by the reserve ratio. Do not forget that all the money was
created out of nothing by bank officers' signatures on checks. The
Fed
checks are not written against funded accounts. Commercial banks'
checks are written against make-believe reserves. The reserve
account,
to the extent that it is supported by deposits, is a bookkeeping
fiction that enables the bank to show you that your money is in your
account even though it has used your money as the basis of a loan.
This is what I call ledger entry legerdemain or ledger entry shell
game. Which account is the money in? The deposit account? The reserve
account? The loan account? Or all three at the same time?
Technically, checks are no longer necessary. All operations can be
done by computers.
Actual reserve ratios required to be held are variable.[8](5)
Presently they are 10%, 3%, and 0%. The theoretical limit of 3% ratio
is 32 times multiplication of reserves. 0% has no theoretical limit.
Actual commercial bank multiplier of the system as a whole is around
12 to 14.
Commercial banks do not lend out money that has been deposited with
them as is commonly believed. In reality, banks create the money,
lend
it, and accept it as additional deposits. Modern Money Mechanics,
published by the Federal Reserve Bank of Chicago, explains on page
six, "Of course, they [commercial banks] do not really pay out loans
from the money they receive as deposits. If they did this, no
additional money would be created. What they do when they make loans
is to accept promissory notes in exchange for credits to the
borrowers' transaction accounts." Remember that no corporeal thing
has
been created at all. It is entirely numbers transferred by checks.
The
fractional reserve requirement limits how much money commercial banks
can create. It is the Fed's most powerful regulatory method. Changes
made in reserves whip-crack through the banking system with an
approximate 12 times effect.
The art of commercial banking is the bookkeeping management of this
ledger entry shell game. Banks are constantly accepting deposits,
paying demand checks, making loans and receiving pay back of loans.
When a bank's loan-reserve ratio cannot otherwise be maintained, the
bank may go to the Fed with Treasury securities as collateral and
borrow. The interest the Fed charges the commercial bank is the
discount rate of interest. The discount rate generally influences all
other interest rates.
There are two other forms of money worth mentioning. Coins issued by
the Treasury is a minor source of currency. It is our only government
issued debt-free money. U. S. Notes are no longer circulated. Federal
Reserve Notes, paper money, are part of the ledger entry shell game.
FRNs are printed for the Fed by the Bureau of Printing and Engraving.
The Fed pays the cost of the printing and issues the notes.
Commercial
banks receive the notes as a debit to their reserve account and issue
them to customers who demand them in exchange for deposit debits.
Coins and notes support the myth that money is something tangible and
substantial.
The foregoing is how our money is created. Money destruction is the
rest of the story of money mechanics. The Fed can shrink basic bank
reserves by taking the opposite action in the open market that it
took
to create reserves. That is, it sells securities. The buyer's check
is
sent to the buyer's commercial bank for debit of his deposit account
and deposits and reserves are reduced. The reduction in reserves
creates a reverse cascade or collapse of loans and deposits of up to
12 times the reduction in reserves. Money is thereby uncreated.
Commercial banks uncreate money corresponding to loan principle when
a
loan is repaid. In order to repay a loan, the money must come out of
a
deposit account. A reduction in deposits may leave the bank with
reserves that supported the deposit and are now excess. To restore
money to circulation, a new loan must be made. No reverse cascading
effect occurs, because reserves are not reduced. Keep in mind that we
are not talking about anything corporeal. We are talking about
deposit
money that only exists as numbers. It is all numbers and bookkeeping.
Numbers can be created and erased with the touch of a computer button
as easily as they can be transferred from one account to another.
Our money supply is a dynamic function of money creation by lending
and cancellation by repayment. The money supply known as M1, M2, M3,
and L commonly published in business and statistical literature is
the
total of liquid money in the pipeline at a given time. It is not a
true representation of the dynamic money supply. The M's obscure the
dynamics of lending and paying back.
Loans, of course, require payment of interest. When banks create
money
to loan, they do not create any money to pay interest. Therefore we
always have more debt than money. When the loan principle is repaid,
money is canceled and the money supply is reduced. The interest debt
can only be paid by additional borrowing. Money, called interest, is
the banks' income; and by not creating money to pay interest, banks
have created an exponential annuity to themselves. The entire banking
system is a lose-lose game for all of us, and a win-win game for
bankers.
It is a system of bankers, by bankers, for bankers. This is true not
only for us but for all people of the planet. We Americans live in
the
la-la land of lies shouting for all the world to hear-we are free! we
are free! Yes, free to put ourselves, our kids, grandkids, and
everyone into debt-money slavery. This is reason enough to understand
why we are not loved worldwide.
Based on the above explanation of the money system, I am about to lob
some handgrenades at commonly believed myths.
MYTH No. 1. The government prints money. This myth is supported by
semantic sophistry. Printing money and issuing money are two entirely
different things. As explained above, the Bureau of Printing and
Engraving prints Federal Reserve Bank Notes, but the government does
not issue them. The Fed does. The government mints coins, an
insignificant part of the money supply, taxes, and borrows in the
open
market from private investors. Perpetrators of this myth equate this
to printing money.
When the Fed or commercial banks buy government securities, new
money is created as described above. The total of those bank
transactions constitutes about 20% of the Gross Public Treasury Debt
erroneously labeled the "national" debt, or about $1 trillion. This
is
less than 20% of the money supply, but it must be remembered that all
money, coins excepted, originates as debt. The true money supply is
the dynamic creation and payback of debt. The perpetrators of this
myth resort to polemical sophistry. New money is created when anyone
borrows from a fractional reserve institution. ANYONE!
MYTH No. 2. Inflation is caused by printing too much money. The
explanation in Myth No. 1 explodes this myth. No printing press, no
printing press inflation.
MYTH No. 3. We must pay off the "national" debt. This is one of the
more pernicious myths. When money is created by debt at interest and
canceled by repayment, it is impossible to pay off all debt and
maintain a money supply. It is mathematically possible for the
government to pay off its debt to all but the Fed; but if the
government paid off the Fed, bank reserves would disappear and so
would the money supply. The debt can never be paid off until an
alternate source of money is available with which to do it. I repeat,
the debt cannot be paid off without an ALTERNATE SOURCE OF MONEY.
MYTH No. 4. Inflation is caused by too much money chasing too few
goods. To believe this myth, one must be deaf, dumb, and blind. Open
your eyes and observe that there is no shortage of goods. In fact,
there are too many goods chasing too few dollars. Consumer debt is
more than $1 trillion for goods not yet paid for. Stores are full and
begging us to buy more by debt erroneously called credit. There has
been too little money since W.W.II, yet inflation as measured by
prices is endemic. The perpetrators of this myth engage in the
doublethink that money derives its value from scarcity while at the
same time they assure us there is too much money! That surely must
cause Orwell to twist in his grave.
MYTH No. 5. Consumer Price Index is a valid measure of inflation.
This
would be true only if inflation is defined that way. CPI is massaged
to create false images for political consumption. The product base,
the weighting, and the time base are all altered for political
subterfuge. CPI is also distorted by price decreases caused by
technological innovation.
MYTH No. 6. Business makes money. This myth is largely supported by
semantic confusion. Only banks make money; businesses get money that
has been created by banks as debt.
MYTH No. 7. The problems of unemployment and debt can be solved by
producing more. Producing more what? We cannot pay for what we have
already produced because of an obvious shortage of money. Production
means nothing without concomitant consumption. The more we produce
and
consume by going into debt, the faster the debt rises in a vicious
spiral of financial and social stratification.
MYTH No. 8. The problems of unemployment and debt can be solved by
exporting goods. Exports in excess of imports only earn debt currency
issued by foreign banks. Foreign debt currency is useless in the
domestic market. Here we encounter yet another mathematical
impossibility. All nations CANNOT be net exporters. The objective of
foreign trade is to get an advantage in the competition for resources
and artificially scarce money. What a colossal folly to export our
real wealth for useless debt currency issued by foreign banks. The
ultimate end of this fallacious competition is WAR-yet another
creator
of debt and waste.
MYTH No. 9. One of the most tenacious and emotionally charged myths
is
that the physical substance of money matters. It is of no consequence
what-so-ever what money is made of as long as it is issued as debt.
The mechanism, the irreconcilable mathematics, and mal-distribution
of
wealth will result in the same social, financial, environmental, and
political chaos. It always has. The historical records of the
junkyard
of empires show it well.
MYTH No. 10. The myth of eminent bankruptcy. One glimpse at the
exponential increase in Total Sector Assets, Liabilities, Credit
Market Debt, and money supply shows there is no inherent reason for
the fictions touted by bankruptcy mongers such as Henry Figge. All
functions increase along similar curves. In articles published in The
Spotlight on February 27 and March 6, 1995, we addressed this myth in
more detail including a graph of the functions. Only mismanagement or
deliberate management could cause debt to ever exceed assets. The
subtle effect of inflation makes it so. Nothing here should be
construed to mean the depression of the 1930s or hyper-inflation such
as Germany in 1923 did not happen or will not happen again. If and
when they happen, they will happen by design to accomplish some
political or financial goal.
MYTH No. 11. The myth that there is a simple solution to a complex
problem. This myth is not unique to money, but it supports all money
myths one way or another. There is mathematical proof that a system
of
n variables must have no less than n solutions. The empirical
reasoning is that in any system of interdependent variables, changing
one variable affects all other variables. Hence, they must all be
solved simultaneously. I have outlined only a few variables. There
are
many more. Is the solution to this money problem beyond the reach of
human intellectuality? I hope not, but perhaps that is just my
wishful
thinking. But if scientific methodology can put men on the moon and
bring them back, why can it not solve the money problem? I hope it
can
if we opt for the necessary mental discipline and begin to deal with
real data in real time. When we do that we will see that many
problems
facing society are a result of the financial structure. No change is
possible without a change in the structure. Just as an automobile
cannot fly due to its structure no matter how much one tinkers with
the engine or what color it is painted, the financial system can only
do what it was designed to do. What it is designed to do is
perpetuate
an exponentially increasing annuity to the financial oligarchy.
If we divide the total money of the nation by the total population of
the nation we conclude that there is about $21,500 for each person.
This sounds like plenty of money for everyone. Unfortunately, there
is
about $58,000 of debt for every person. Apply your $21,500 to the
debt
and $37,500[9](6) of debt would remain. Your options are forfeiture
of
assets or borrow more money. Can you borrow yourself out of debt? You
cannot!
Since the average person only deals with money after it has been
created, perhaps it is not surprising that the cause of the ever
increasing debt is not widely perceived. But it must be widely
perceived before there is any hope of correcting it.
Since the established mechanism of money creation and uncreation is
itself the cause of ever increasing debt, it is not possible to
correct the debt problem using any method that deals with money after
it has been created.
Working harder or longer will not correct it.
Having a job for everyone will not correct it.
Neither raising nor lowering wages will correct it.
Neither greater nor lesser utilization of natural resources will
correct it.
Neither increasing nor decreasing exports will correct it.
Neither more nor less spending will correct it.
Neither full employment nor less than full employment will correct
it.
Changing interest rates will not correct it.
Changing tax rates will not correct it.
The only thing that will correct it is the one thing that is a
sacrosanct non-subject in media, education, politics, religion, and
even social discourse. The only thing that will correct it is to
strip
banks of their power to create their money as debt at interest and
adopt a method of money creation whereby the U. S. Treasury creates
our money as CREDIT!
This issue is the key issue in the financial future of our nation and
world!
This FRAUDULENT money mechanism is utilized throughout the world and
is destroying nations, communities, families, and individuals right
before our eyes!
We must turn an entrenched, centuries old financial establishment on
its ear!
READ ABOUT IT.
STUDY IT.
UNDERSTAND IT.
TALK ABOUT IT.
THEN RAISE SOME HELL!
_________________
1. Modern Money Mechanics published by the Chicago Federal Reserve
Bank.[10]return
2. Second quarter, 1999. [11]return
3 See Title 12 USC for complete, current banking law.[12]return
4. See Modern Money Mechanics for a complete review of open market
operations.[13]return
5. See current issue of Federal Reserve Bulletin for requirements and
conditions.[14]return
6. Based on credit market non-financial debt. Total other liabilities
could triple it.[15]return
Bibliography
A Matter of Life or Debt by Eric de Mar�.
The Money Creators by Gertrude Coogan.
The Truth in Money Book by Ted Thoren and Richard Warner.
The Credit-Money Blue Book by Peter Cook
Social Credit by C. H. Douglas.
Monopoly of Credit by C. H. Douglas.
Human Ecology by Thomas Robertson.
A Primer on the Fed published by FRB Richmond.
Modern Money Mechanics published by FRB Chicago.
Economic Insanity by Roger Terry.
United States Code, Title 12 and Title 31.
[16]TOP OF PAGE [17]RETURN TO INDEX [18]RETURN TO HOMEPAGE
References
1. http://landru.i-link-2.net/monques/monques.html#1
2. http://landru.i-link-2.net/monques/firstbank.html#THE FIRST
3. http://landru.i-link-2.net/monques/coinageact.html#Chap.
4. http://landru.i-link-2.net/monques/monques.html#2
5. http://landru.i-link-2.net/monques/FR1.html#THE FEDERAL
6. http://landru.i-link-2.net/monques/monques.html#3
7. http://landru.i-link-2.net/monques/monques.html#4
8. http://landru.i-link-2.net/monques/monques.html#5
9. http://landru.i-link-2.net/monques/monques.html#6
10. http://landru.i-link-2.net/monques/monques.html#which
11. http://landru.i-link-2.net/monques/monques.html#Credit
12. http://landru.i-link-2.net/monques/monques.html#Act
13. http://landru.i-link-2.net/monques/monques.html#selling
14. http://landru.i-link-2.net/monques/monques.html#ratios
15. http://landru.i-link-2.net/monques/monques.html#Apply
16. http://landru.i-link-2.net/monques/monques.html#MONEY
17. http://landru.i-link-2.net/monques/index.html#MONQUES
18. http://landru.i-link-2.net/monques/index.html#GOOD NEWS!
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